Vacation leave: A 5-part plan & sample policies

The United States is the only industrialized nation that has no minimum paid-leave law. About 77% of U.S. workers receive some combination of paid holidays or vacation time, according to the Bureau of Labor Statistics. That means almost a quarter of U.S. workers have no paid leave and no paid public holidays.

Several weeks of vacation is standard in much of the rest of the world. In Australia, employers are required to provide 20 days off per year. France requires a minimum of 25 days, Germany mandates 24 and the United Kingdom requires 20. Even China requires a minimum vacation time of 15 days.

Recent studies have shown that many employees aren’t even taking the time off they do have. Many Americans routinely skip vacations, handing back to employers more than $21 billion in unused vacation time each year.

In fact, vacation is good for business—it lowers employee stress and prevents burnout. Consider your vacation policy an important element of your organization’s health.

5-part vacation plan

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You wouldn’t dream of having informal payroll policies, right? Yet too many employers treat vacation time—a form of compensation—as a casual entitlement. Getting too informal can cost you.

Case in point: A company fired a worker after 20 years on the job, claiming he failed to show up for three straight days and didn’t call. The employee said he was scheduled to be on vacation. But his supervisor’s calendar said the vacation was slated for the following week. After the firing, the company hired a much younger em­­ployee as a replacement. The former employee sued for age bias and won a $150,000 jury award. In upholding the award, the state appeals court criticized the way the company recorded vacation requests as “rather informal.”

A sound vacation policy addresses the following five elements:

1. How much time. Most companies base the number of annual vacation days on tenure and seniority—more days off for more years of service. Vacation days can increase gradually or come in one lump sum as an incentive to recruit and retain management-level employees.

2. Eligibility. At what point does the employee become eligible to take vacation or begin accumulating vacation leave? Typical benchmarks are after six months or a year. Can part-time workers earn vacation leave?

3. Requesting leave. How far in advance should em­­ployees schedule vacation, and how should they request it? How much time off can employees take in one stretch?

4. Blackout dates. Make sure your policy states that the company’s needs take priority, so vacations may need to be rescheduled. If yours is a seasonal business, your policy can require employees to schedule time off during the nonpeak months.

5. Unused vacation time. If vacation time goes unused by the end of the year, you have four options:

  • Force employees to forfeit accrued leave
  • Pay employees the equivalent in cash
  • Force employees to use their time
  • Allow them to carry it over to the next year.


Sample Policies: Vacations
The following sample policies were excerpted from The Book of Company Policies

Sample Policy 1:

This first policy stresses the importance of taking vacation time by forbidding carryovers except when special workloads make it impossible for employees to take the vacation due them:

“XYZ believes that vacation is important to the health and well-being of our employees and encourages all employees to utilize their vacation days. Therefore, XYZ will not accumulate unused vacation days or pay for unused vacation days. . . . In the event special work demands prevent an employee from taking all available vacation days, however, a request may be made to carry over no more than five days into the next vacation cycle. To be effective, approval must be in writing.”


Sample Policy 2:

This second policy goes on to specify how vacation time accrues and when it may be used. It also specifies what happens if the employee is fired before using accrued vacation days:

“If an employee is terminated prior to completion of the Introductory Period, no vacation days are accrued . . . but once that time has passed, an employee will be entitled to vacation pay for accrued but unused vacation days on a pro-rata basis.”

The second policy specifies how vacation days are accrued and alerts employees to the need to obtain their supervisor’s approval of their leave:

“Each full-time employee may take vacation with full pay at such time as is mutually agreed upon between the employee and the owner or manager of operations. After one year of full-time employment, the employee accrues five working days of paid vacation annually; after two years, 10 days; after five years, 15 days; and after 10 years, 20 days. If an authorized holiday occurs within an employee’s vacation period, equivalent time off with pay will be provided.

“Full-time employees may carry over up to five days of vacation leave per calendar year. If not used, remaining vacation time will be forfeited.

“All vacation leave must have the prior approval of the employee’s supervisor. So please check with your supervisor before making vacation plans. Maximum vacation leave to be taken at any one time is 15 days, unless prior approval is granted by the manager of operations.”